Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-3316 October 31, 1951

JOSE PONCE DE LEON, plaintiff-appellant,

vs.
SANTIAGO SYJUCO, INC., defendant-appellant,
PHILIPPINE NATIONAL BANK, defendant-appellee.

Jose D. Cortes and Claro M. Recto for plaintiff and appellant.

Ramon Diokno and Jose Diokno for defendant and appellant.
Hilarion U. Jarencio for defendant and appellee.

BAUTISTA ANGELO, J.:

This is an appeal from a decision of the Court of First Instance of Manila absolving defendant
Santiago Syjuco, Inc. of the complaint and condemning the plaintiff to pay to said defendant the
sum of P18,000 as principal and the further sum of P5,130 as interest thereon from August 6,
1944, to May 5, 1949, or a total of P23,130, Philippine currency, with interest thereon at the rate
of 6% per annum from May 6, 1949, until said amount is paid in full, with costs against the
plaintiff.

The facts of this case as reflected in the pleadings and the evidence, stripped of unnecessary
details, are well narrated in the brief submitted by counsel for the Philippine National Bank, and
which for purposes of this decision are hereunder reproduced:

The appellee, Philippine National Bank, hereinafter to be referred to as the Bank, was the
owner of two (2) parcels of land known as Lots 871 and 872 of the Murcia Cadastre,
Negros Occidental, more particularly described in Transfer Certificates of Titles Nos.
17176 and 17175, respectively. On March 9, 1936 the Bank executed a contract to sell
the said properties to the plaintiff, Jose Ponce de Leon, hereinafter to be referred to as
Ponce de Leon, the total price of P26,300, payable as follows: (a) P2,630 upon the
execution of the said deed; and (b) the balance P23,670 in ten (10) annual amortizations,
the first amortization to fall due one year after the execution of the said contract (See
annex "A" Syjuco's Segunda Contestacion Enmendada).

On May 5, 1944, Ponce de Leon obtained a loan from Santiago Syjuco, Inc., hereinafter
to be referred to a s Syjuco, in the amount of P200,000 in Japanese Military Notes,
payable within one (1) year from May 5, 1948. It was also provided in said promissory
note that the promisor (Ponce de Leon) could not pay, and the payee (Syjuco) could not
demand, the payment of said note except within the aforementioned period. To secure the
payment of said obligation, Ponce de Leon mortgaged in favor of Syjuco the parcels of
land which he agreed to purchase from the Bank (See Annex "B", Syjuco's Segunda
Contestacion Enmendada).

On May 6, 1944, Ponce de Leon paid the Bank of the balance of the purchase price
amounting to P23,670 in Japanese Military notes and, on the same date, the Bank
executed in favor of Ponce de Leon, a deed of absolute sale of the aforementioned parcels
of land (See Annex "F", Syjuco's Segunda Contectacion Enmendada).

The deed of sale executed by the Bank in favor of Ponce de Leon and the deed of
mortgage executed by Ponce de Leon in favor of Syjuco were registered in the Office of
the Register of Deeds of Negros Occidental and, as a consequence of such registration,
Transfer Certificate of Title Nos. 17175 and 17176 in the name of the Bank were
cancelled and Transfer Certificate of Title No. 398 (P.R.) and No. 399 (P.R.),
respectively, were issued in the name of Ponce de Leon. The mortgage in favor of Syjuco
was annotated on the back of said certificates.

On July 31, 1944, Ponce de Leon obtained an additional loan from Syjuco in the amount
of P16,000 in Japanese Military notes and executed in the latter's favor of promissory
note of the same tenor as the one had previously executed (R. on Appeal, pp. 23-24)

On several occasions in October, 1944, Ponce de Leon tendered to Syjuco the amount of
P254,880 in Japanese military notes in full payment of his indebtedness to Syjuco. The
amount tendered included not only the interest up to the time of the tender, but also all
the interest up to May 5, 1948. Ponce de Leon also wrote to Syjuco a letter tendering the
payment of his indebtedness, including interests up to May 5, 1948, Syjuco, however,
refused to accept such repeated tenders. During the trial, Ponce de Leon explained that he
wanted to settle his obligations because as a member of the guerilla forces he was being
hunted by the Japanese and he was afraid of getting caught and killed (t.s.n. pp. 14-15).

In view of Syjuco's refusal to accept the payment tendered by Ponce de Leon, the latter
deposited with the Clerk of Court, of First Instance of Manila the amount of P254,880
and, on November 4, 1944, he filed a complaint consigning the amount so deposited to
Syjuco. To this complaint Syjuco filed his answer. The records of this case were
destroyed as a result of the war and after the liberation the same were reconstituted (R. on
A., pp. 1-17)

On May 15, 1946, Ponce de Leon filed a petition in the Court of First Instance of Negros
Occidental for the reconstitution of transfer Certificates of Titles Nos. 17175 and 17176
in the name of the Bank and, in an order dated June 4, 1946, the Court ordered the
reconstitution of said titles. In compliance with said order, the Register of Deeds of
Negros Occidental issued Certificates of Title Nos. 1297-R and 1298-R in the names of
the Bank. Ponce de Leon then filed with the Register of Deeds a copy of the deed of sale
of the properties covered by the said certificates of title issued by the Bank in his (Ponce
de Leon's) favor and the Register of Deeds cancelled the said Certificates of Title Nos.
1297-R and 1298-R and issued in favor of Ponce de Leon Transfer Certificates of Title
Nos. 526-N and 527-N (R. on A., pp. 48-50).
 On August 16, 1946, Ponce de Leon obtained an overdraft account from the Bank in an
amount not exceeding P135,000 and, on the same date, he executed a mortgage of the
two parcels of land covered by the reconstituted Transfer Certificates of Title Nos. 526-N
and 527-N in favor of the said Bank to secure the payment of any amount which he may
obtain from the Bank under aforementioned overdraft account. The overdraft account was
granted by the Bank to Ponce de Leon in good faith, said Bank not being aware of the
mortgage which Ponce de Leon had executed in favor of Syjuco during the Japanese
occupation, and said Bank believing that the said properties had no lien or encumbrance
appeared annotated on the reconstituted certificates of Title Nos. 526-N and 527-N in the
name of Ponce de Leon (See Testimony of Atty. Endriga).

On September 28, 1946, Syjuco filed a second amended answer to Ponce de Leon's
complaint and, in its "Tercera Reconvention", it claimed that Ponce de Leon, by
reconstituting the titles in the name of the Bank, by causing the Register of Deeds to have
the said titles transferred in his (Ponce de Leon's name, and by subsequently mortgaging
the said properties to the Bank as a guaranty for his overdraft account, had violated the
conditions of the morgage which Ponce de Leon has executed in its favor during the
Japanese occupation. Syjuco then prayed that the mortgage executed by Ponce de Leon in
favor of the Bank be declared null and void. (R. on A., pp. 32-53).

Ponce de Leon objected to the inclusion of the Bank as a cross-defendant. (R on A. pp.

55-58). Notwithstanding said objection, however, the lower court ordered the inclusion of
the Bank as a cross-defendant (R. on A., pp. 59-60).

On June 28, 1947, the Bank filed a motion to drop on the ground that it had been
misjoined and to dismiss on the ground that the venue was improperly laid and there is
another action pending between the same parties for the same cause (R. on A., pp. 65-75).
The said motion was denied by the lower court in its order dated October 7, 1947 (R. on
A., pp. 95-100). In view of such denial, the Bank filed its answer on October 29, 1947 (R.
on A., pp. 101-106).

On June 24, 1949, the lower court rendered a decision absolving Syjuco from Ponce de
Leon's complaint and condemning Ponce de Leon to pay Syjuco the total amount of
P23,130 with interest at the legal rate from May 6, 1949, until fully paid (R. on A., pp.
107-135). Both Ponce de Leon and Syjuco file their appeal from this decision.

The principal questions to be determined in this appeal are: (1) Did the lower court err in not
giving validity to the consignation made by the plaintiff of the principal and interest of his two
promissory notes with the clerk of court?; (2) did the lower court err in reducing the principal
and interest of said promissory notes to their just proportions using as a pattern the Ballantyne
schedule in effecting the reduction?; (3) did the lower court err in disregarding the defense of
moratorium set up by the plaintiff against the counterclaim of defendant Syjuco?; and (4) did the
lower court err in not passing on the question of priority between the mortgage claim of
defendant Syjuco and that of the Philippine National Bank on the same set of properties on the
ground that they are situated in a province different from that in which this action was brought?
We will discuss these issues in the order in which they are propounded.
1. It appears that plaintiff obtained from defendant Syjuco two loans in 944. One is for P200,000
obtained on May 5, 1944, and another for P16,000 obtained on July 31, 1944. These two loans
appear in two promissory notes signed by the plaintiff which were couched in practically the
same terms and conditions and were secured by two deeds of mortgage covering the same
parcels of land. In said promissory notes it was expressly agreed upon that plaintiff shall pay the
loans "within one year from May 5, 1948, . . . peso for peso in the coin or currency of the
Government of the Philippines that, at the time of payment above fixed it is the legal tender for
public and private debts, with interests at the rate of 6% per annum, payable in advance for the
first year, and semi-annually in advance during the succeeding years", and that, the period above
set forth having been established for the mutual benefit of the debtor and creditor, the former
binds himself to pay, and the latter not to demand the payment of, the loans except within the
period above mentioned. And as corollary to have the above stipulations, it was likewise agreed
upon in the two deeds of mortgage that "if either party should attempt to annul or alter any of the
stipulations of this deed or of the note which it secures, or do anything which has for its purpose
or effect an alteration or annulment of any of said stipulations, he binds himself to indemnify the
other for the losses and damages, which the parties hereby liquidate and fix at the amount of
P200,000".

The facts show that, on November 15, 1944, or thereabouts, contrary to the stipulation above
mentioned, plaintiff offered to pay to the defendant not only the principal sum due on the two
promissory notes but also all the interests which said principal sum may earn up to the dates of
maturity of the two notes, and as the defendant refused to accept the payment so tendered,
plaintiff deposited the money with the clerk of court and brought this action to compel the
defendant to accept it to relieve himself of further liability.

The question now to be determined is, is the consignation made by the plaintiff valid in the light
of the law and the stipulations agreed upon in the two promissory notes signed by the plaintiff?
Our answer is in the negative.

In order that cogsignation may be effective, the debtor must first comply with certain
requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the
consignation of the obligation had been made bacause the creditor to whom tender of payment
was made refused to accept it, or because he was absent for incapacitated, or because several
persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that
previous notice of the consignation have been given to the person interested in the performance
of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of
the court (Art 1178, Civil Code); and (5) that after the consignation had been made the person
interested was notified thereof (Art. 1178, Civil Code). In the instant case, while it is admitted a
debt existed, that the consignation was made because of the refusal of the creditor to accept it,
and the filing of the complaint to compel its acceptance on the part of the creditor can be
considered sufficient notice of the consignation to the creditor, nevertheless, it appears that at
least two of the above requirements have not been complied with. Thus, it appears that plaintiff,
before making the consignation with the clerk of the court, failed to give previous notice thereof
to the person interested in the performance of the obligation. It also appears that the obligation
was not yet due and demandable when the money was consigned, because, as already stated, by
the very express provisions of the document evidencing the same, the obligation was to be paid
within one year after May 5, 1948, and the consignation was made before this period matured.
The failure of these two requirements is enough ground to render the consignation ineffective.
And it cannot be contended that plaintiff is justified in accelerating the payment of the obligation
because he was willing to pay the interests due up to the date of its maturity, because, under the
law, in a monetary obligation contracted with a period, the presumption is that the same is
deemed constituted in favor of both the creditor and the debtor unless from its tenor or from
other circumstances it appears that the period has been established for the benefit of either one of
them (Art. 1127, Civil Code). Here no such exception or circumstance exists.

It may be argued that the creditor has nothing to lose but everything to gain by the acceleration
of payment of the obligation because the debtor has offered to pay all the interests up to the date
it would become due, but this argument loses force if we consider that the payment of interests is
not the only reason why a creditor cannot be forced to accept payment contrary to the stipulation.
There are other reasons why this cannot be done. One of them is that the creditor may want to
keep his money invested safely instead of having it in his hands (Moore vs. Cord 14 Wis. 231).
Another reason is that the creditor by fixing a period protects himself against sudden decline in
the purchasing power of the currency loaned specially at a time when there are many factors that
influence the fluctuation of the currency (Kemmerer on Money, pp. 9-10). And all available
authorities on the matter are agreed that, unless the creditor consents, the debtor has no right to
accelerate the time of payment even if the premature tender "included an offer to pay principal
and interest in full" (17 A.L.R. 866-867; 23 L.R.A. (N.S.) 403; see ruling of this Court in the
recent case of Ilusorio vs. Busuego, 84 Phil., 630).

Tested by the law and authorities we have cited above, the conclusion is inescapable that the
consignation made by the plaintiff is invalid and, therefore, did not have the effect of relieving
him of his obligation.

2. The next question to be determined is whether the lower court erred in reducing the amount of
the loans by applying the Ballantyne schedule.

This is not the first time that this question has been raised. On two previous occasions this Court
had been called upon to rule on a similar question and has decided that when the creditor and the
debtor have agreed on a term within which payment of the obligation should be paid and on the
currency in which payment should be made, that stipulation should be given force and effect
unless it appears contrary to law, moral or public order. Thus, in one case this Court said: "One
who borrowed P4,000 in Japanese military notes on October 5, 1944, to be paid one year after, in
currency then prevailing, was ordered by the Supreme Court to pay said sum after October 5,
1945, that is, after liberation, in Philippine currency (Roño vs. Gomez et al., 83 Phil., 890). In
another case, wherein the parties executed a deed of sale with pacto de retro of a parcel of land
for the sum of P5,000 in Japanese military notes agreeing that within 30 days after the expiration
of one year from June 24, 1944, the aforementioned land may be redeemed sa ganito ding
halaga (at the same price), the Court held that the "phrase sa ganito ding halaga meant the same
price of P5,000 in Japanese war notes". The Court further said, "The parties herein gambled and
speculated on the date of the termination of the war and the liberation of the Philippines by
America. This can be gleaned from the stipulation about redemption, particularly that portion to
the effect that redemption could be effected not before the expiration of one year from June 24,
1844. This kind of agreement is permitted by law. We find nothing immoral or unlawful in it"
(Gomez vs. Tabia Off. Gaz., 641; 84 Phil., 269).

In this particular case, the terms agreed upon are clearer and more conclusive than the ones cited
because the plaintiff agreed not only to pay the obligation within one year from May 5, 1948, but
also to pay peso for peso in the coin or currency of the Government that at the time of payment it
is the legal tender for public and private debts. This stipulation is permitted by law because there
is nothing immoral or improper in it. And it is not oppressive because it appears that plaintiff
used a great portion of that money to pay his obligations during the Japanese occupation as
shown by the fact that he settled his account with the Philippine National Bank and other
accounts to the tune of P100,000. It would seem therefore clear that plaintiff has no other
alternative than to pay the defendant his obligation peso for peso in the present currency as
expressly agreed upon in the two promissory notes in question. The decision of the lower court
on this point should, therefore, be modified.

As regards the penal clause contained in the two deeds of mortgage herein involved, we agree to
the following finding of the court a quo: "The attempt made by the plaintiff to pay the obligation
before the arrival of the term fixed for the purpose may be wrong; but it may be attributed to an
honest belief that the term was not binding and not to a desire to modify the contract". This penal
clause should be strictly construed.

3. As regards the third question, we find that the lower court erred in disregarding the defense of
moratorium set up by the plaintiff against the counterclaim of the defendant on the sole ground
that this defense was not raised by the plaintiff in his pleadings. An examination of the record
shows that the plaintiff raised this question in his pleadings. This must have been overlooked by
the court.

The lower court, therefore, should have passed upon this defense in the light of Executive Order
No. 32, which suspended payment of all obligations contracted before March 10, 1945. We note,
however, that said moratorium orders have already been modified by Republic Act No. 342 in
the sense of limiting the ban on obligations contracted before the outbreak of the war to creditors
who have filed claims for reparations with the Philippine War Damage Commission, leaving
them open to obligations contracted during the Japanese occupation (Uy vs. Kalaw Katigbak,
G.R. No. L-1830, December 1, 1949). As the obligation in question has been contracted during
enemy occupation the same is still covered by the moratorium orders. The claim of counsel for
the defendant that the moratorium orders cannot be invoked because they are unconstitutional
cannot now be determined it appearing that it has been raised for the first time in this instance.
This defense of moratorium was raised by plaintiff in his reply to the amended answer of the
defendant dated August 1, 1946, and in his motion to dismiss the counterclaim dated October 29,
1946, but the defendant did not traverse that allegation nor raise the constitutionality of the
moratorium orders in any of its pleadings filed in the lower court. It is a well known rule that this
Court can only considera question of constitutionality when it has been raised by any of the
parties in the lower court (Laperal vs. City of Manila, 62 Phil., 352; Macondray and Co. vs.
Benito and Ocampo, 62 Phil., 137).
4. The facts relative to the execution of the deed of mortgage in favor of the Philippine National
Bank on the two lots in question are as follows: On March 9, 1936, the Philippine National Bank
was the owner of the lots Nos. 872 and 871 of the Murcia Cadastre, Negros Occidental, covered
by Certificates of Titles Nos. 17175 and 17176 respectively. On the same date, the Bank sold the
two lots to the plaintiff and as a result Transfer Certificates of Titles Nos. 398 and 399 were
issued in the name of the plaintiff. On May 5, 1944, plaintiff mortgaged these two lots to
defendant Syjuco to guarantee the payment of two loans, one for P200,000 and another for
P16,000. The mortgage was registered in accordance with the law. Then liberation came.
Plaintiff taking advantage of the destruction of the records of the office of the Register of Deeds
of Negros Occidental, obtained from the Court of First Instance of said province the 3‚3
reconstitution of Transfer Certificate of Titles Nos. 17175 and 17176 and by virtue thereof, the
register of deeds issued transfer certificates of titles Nos. 1297-R and 1298-R in the name of the
Philippine National Bank. Then he secured the cancellation of the titles last named and the
issuance of Transfer Certificates of Titles Nos. 526-N and 527-N in his name without informing
the court of the encumbrance existing in favor of defendant Syjuco. After securing the new titles
in his name, plaintiff obtained a loan from the Philippine National Bank for the sum of P135,000
on the security of the property covered by said reconstituted titles. On said titles no encumbrance
appears annotated, but it was noted thereon that they would be subject to whatever claim may be
filed by virtue of documents or instruments previously registered but which, for some reason, do
not appear annotated thereon, as required by a circular of the Department of Justice.

From the foregoing facts, it clearly appears that the mortgage executed in favor of the defendant
Syjuco is prior in point of time and in point of registration to that executed in favor of the
Philippine National Bank, let alone the fact that when the later mortgage was executed, the Bank
must have known, as it was its duty to find out, that there was a warning appearing in
reconstituted titles that the same were subject to whatever encumbrance may exist which for one
reason or another does not appear in said titles. With such warning, the Bank should have taken
the necessary precaution to inquire into the existence of any hidden transaction or encumbrance
that might affect the property that was being offered in security such as the one existing in favor
of the defendant, and when the Bank accepted as security the titles offered by the plaintiff
without any further inquiry, it assumed the risk and the consequences resulting therefrom.
Moreover, it also appears that this same question of priority has already been threshed out and
determined by the Court of First Instance of Negros Occidental in the cadastral proceedings
covered the two lots in question wherein the court ordered the cancellation of the reconstituted
titles issued in the name of the plaintiff and the reconstitution of the former titles copies of which
were in the possession of defendant Syjuco, subject only to the requirement that the mortgage in
favor of the Philippine National Bank be annotated on said new titles. In other words, the court
declared valid the titles originally issued in the name of the plaintiff wherein the encumbrance in
favor of the defendant Syjuco appears and declared invalid the reconstituted titles secured by
plaintiff through fraud and misinterpretation. This order is now final because no appeal has been
taken therefrom by any interested party.

We have, therefore, no other alternative than to declare that the mortgage claim of the defendant
Syjuco is entitled to priority over that of the Philippine National Bank. This question can be
threshed out here regardless of venue because the counterclaim is but ancillary to the main case
(1 Moran, Comments on the Rules of Court, 2nd ed., 201).
In view of the foregoing, the decision appealed from should be modified in the sense of ordering
the plaintiff to pay the defendant Syjuco the sum of P216,000, Philippine currency, value of two
promissory notes, with interest thereon at the rate of 6% per annum from May 6, 1949, until said
amount is paid in full. It is further ordered that should said amount, together with the
corresponding interests, be not paid within 90 days from the date this judgment in accordance
with law, with costs against the plaintiff.

However, this judgment shall be held in abeyance, or no order for the execution thereof shall be
issued, until after the moratorium orders shall have been lifted.

Feria, Bengzon, Tuason, Reyes, and Jugo, JJ., concur.

Separate Opinions

PARAS, C.J., dissenting:

The plaintiff obtained from defendant Syjuco on May 5, 1944, a loan of P200,000 and on July
31, 1944, another loan of P16,000, payable within one year from May 5, 1948." On November
15, 1944, the plaintiff offered to pay the entire indebtedness plus all the interest up to the date of
maturity. Upon Syjuco's refusal to accept the tendered payment, the plaintiff deposited the
amount with the clerk of the Court of First Instance of Manila and instituted the present action to
compel Syjuco to accept payment. The records of the case were destroyed during the war, but
they were duly reconstituted after the liberation. The trial court sentenced the plaintiff to pay
Syjuco the total sum of P23,130, representing the whole indebtedness plus all the interest from
August 6, 1944, to May 5, 1949, computed according to the Ballantyne scale of values. From this
judgment Syjuco has appealed, claiming his right to be paid the sum of P216,000, actual
Philippine currency, plus P200,000, as penalty agreed upon in the contract. The majority of this
Court sustains Syjuco's claim for P216,000.

As the same question has been resolved in Ilusorio vs. Busuego, G.R. No. L-822, September 30,
19491, Roño vs. Gomez, May 31, 19492, 46 Off. Gaz., Supp. to No. 11, p. 339, and Gomez vs.
Tabia, August 5, 19493, 47 Off. Gaz., 644, in which I dissented, I have to disagree with the
majority in the case at bar.

On the question whether a debtor can pay an indebtedness before the date of maturity provided
corresponding interest is paid, I said the following in Ilusorio vs. Busuego:

In other words, I hold that the mortgagor has the right to pay the indebtedness at any time
within three years provided that, as in this case, he pays the interest for the whole term of
the mortgage. In the ordinary course of things, a loan is granted in consideration of
interest, and if by the early payment of the obligation, the creditor would not lose any part
of the stipulated interest, both paragraphs 3 and 4 would practically be enforced. It cannot
be alleged that the creditor herein, in addition to interest, wanted to have his money in the
safekeeping of the debtor because the contract is one of the loan and not of deposit. It is
 to be remembered, moreover, that the debt was being paid in the same currency loaned
(Japanese money). The effect of inflation is one of the risks naturally incident to the
money-lending business, and the lender should protect himself against it by plain
covenants.

On the matter of requiring a loan obtained in Japanese war notes to be paid after the liberation in
equivalent Philippine currency, I am hereinbelow reproducing at length what I stated in Roño vs,
Gomez which should have greater application and force, because while in the Roño case the
amount of the loan is only P4,000, in the case at bar the debtor is being ordered to pay the large
sum of P216,000:

The principal defense set up by Roño in that the note is contrary to law, morals or public
order. This defense was flatly overruled in the court of origin, seconded by the Court of
Appeals. The judgment of the latter court is now before us upon appeal by certiorari of
Cristobal Roño.

The situation in which a borrower of P4,000 in Japanese war notes is made to pay the
same amount in currency of the present Philippine Republic. In other words, the borrower
of P4,000 during the latter part of the Japanese Military occupation which, in ordinary
practical terms, could hardly purchase a cavan of rice, is now compelled to pay P4,000 in
actual Philippine currency which, in the same ordinary practical terms, may be held
equivalent to at least 100 cavanes of rice. Said borrower is compelled to do so, merely
because in his promissory note he agreed to pay after one year in pesos of the Philippine
Currency, and expressly waived any postwar arraignment devaluating the amount
borrowed in October, 1944.

The Court of Appeals held that the commitment of Cristobal Roño settle his indebtedness
in the legal tender at the time of payment is not against the law, morals or public order.
We readily acquiesce in the proposition that the contract is not contrary to law or public
order, for we are aware of no statute or public policy which prohibits a person from
bringing about or causing his own financial reverses. But we are of the opinion that, if
enforced to the letter, it is against morals. If the contract was entered into in times of
peace, its obligations should have the force of law between the parties and must be
performed in accordance with their stipulations (Art. 1091, Civil Code). But when as in
the case at bar, the borrower had to obtain a loan during war time, when living conditions
were abnormal and oppressive, everything was uncertain, and everybody was fighting for
his survival, our conscience and common sense demand that his acts be judged by
compatible standards.

The Court of Appeals found that everybody was aware of the developments of the war
outside of official propaganda and that, in so far as knowledge of war events is
concerned, Roño was on more or less on an equal footing with Gomez. This means that
all knew the bombings by the american air forces of various parts of the islands in
September, 1944, and of the decisive defeats of the Axis powers in Europe, and that the
mighty forces of the Allies would soon, as in fact they did, concentrate on and crush
Japan, with the result that the Japanese war notes would accordingly become worthless. It
 may of course be opposed that Roño knowingly bound himself to his pact. But this is true
merely in theory. Although, as found also by the Court of Appeals, Roño was not entirely
an ignorant man because he is a mechanic and knows English, the fact nevertheless
remains that the lender, Jose L. Gomez, was a lawyer, and the exaggerated way the
promissory word is worded plainly shows that the latter must have thoroughly studied the
transaction with Roño imposed the conditions evidenced therein to his one-sided
advantage. It is needless to say that borrowers are always at the mercy of unscrupulous
money lenders. "Neccesitous men are not, truly speaking, free men; but, to answer a
present emergency, will submit to any terms that the crafty may impose upon them."
(Marquez et al. vs. Valencia, 44 Off. Gaz., pp. 895, 897*, quoting Villa vs. Santiago, 38
Phil., 157, 164). We cannot believe, as intimated in the testimony of Sinforosa A. de
Gomez (wife of Jose L. Gomez), that Roño informed them that he would use the money
to purchase a jitney, for the simple reason that, in view of the inflated value of the
Japanese war notes on October, 1944, the amount of P4,000 could not possibly purchase
a jitney. At any rate, even accepting the conjecture that said amount was invested by
Roño in his business, the circumstance still makes him a necessitous man that had to
submit to the terms of his lender. That a contract like the one in question is shocking to
the conscience and therefore immoral becomes patent when we resort to the example of a
borrower of P2,000 just before the liberation, when a kilo of sugar already cost P2,000,
being compelled to pay the same in Philippine currency now when a kilo of sugar hardly
costs P0.50. Where is the conscience of anyone who will collect P2,000 for a loan of
virtually fifty centavos?

The Court of Appeals argued that the parties took equal risks, since it was impossible to
predict the exact time at which the Philippines would be liberated and that, supposing that
the liberation had been delayed for more than one year, Gomez might have been the loser
and Roño the winner, for the Japanese currency might have further diminished in value.
To this we would answer that Gomez would then be paid in the same currency that was
borrowed and during the same war time when the loan was extended. This would not be
unusual, as the parties are still under the very environments that surrounded the execution
of the contract.

I may add the following observations contained in my dissenting opinion in Gomez vs, Tabia:

The majority also hold that the contract here in question is aleatory. This is open to doubt.
Aleatory contracts, or those depending on chance, are covered by Title XII, Book IV, of
the Civil Code. It is to be noted that, under article 1790, an aleatory contract involves the
occurrence of an event which is uncertain or will happen at an indeterminate time.
Moreover, the contracts contemplated by the Code as being aleatory, are grouped under
insurance, contracts, gambling and betting, and life annuities. It follows that the contract
now under consideration, which is one of loan does not fall under any of those groups of
aleatory contracts. At any rate, the contract of loan herein involved is clearly not
dependent upon any uncertain event. The loan was granted on a definite date and has to
be paid on a definite date. Both dates are certain. The payment of the loan has to be
effected regardless of the result of the war.
 As the contract in question contemplated that the payment is to be made in the same
currency that was loaned, and the parties are presumed never to have intended that said
payment would be made in what has become valueless money, justice demands that the
indebtedness be paid in actual Philippine currency at an equivalent amount determined in
the Ballantyne schedule, in the absence of evidence as to such value. The exceptions
mentioned in the Ballantyne schedule refers to contracts in which the obligation is
payable by something other than legal tender. Indeed, the majority in Hilado vs. De la
Costa et al.,** G.R. No. L-150, decided on April 30, 1949, held that "what the debtor
should pay is the value of the Japanese war notes in relation the peso of Philippine
currency obtaining on the date when at the place where the obligation was incurred,
unless the parties had agreed otherwise." This underscored clause undoubtedly
contemplates an agreement to pay in a consideration other than legal tender of the
Philippines, such as gold dollars, pounds sterling, Spanish pesetas, or the like. It cannot
be otherwise, since if the intention is merely to pay in legal tenders, no express
stipulation is necessary, because under section 1612 of the Revised Administrative Code,
the Philippine currency is the legal tender for all debts.

In reiteration of my stand in the case of Roño vs. Gomez, supra, I wish to emphasize that
to require the herein respondent to pay the sum of P5,000 actual Philippine currency, in
return for an indebtedness obtained in Japanese military notes equivalent in actual
Philippine currency according to the Ballantyne schedule, to only P790.26 as found by
the Court of Appeals, is unconscionable.

In my considered opinion, the appealed judgment should at most be affirmed.

Pablo, J., concurs:

PADILLA, J., dissenting:

I dissent. A loan of a sum of money is usually made for the purpose of earning interest. The
creditor should not be allowed to exact and impose unfair terms and conditions, such as that of
barring the debtor from paying the principal of the loan before the time agreed upon. By the
payment of the principal of the loan together with the stipulated interests accrued and to accrue
up to the time agreed upon for the payment of the principal, the purpose or aim of the loan is
attained — all to the advantage and benefit of the creditor. The stipulated sum to be paid by the
debtor as penalty or liquidated damages equal to the principal of the loan if payment thereof be
made before the time agreed upon, even if the debtor pays at the same time the stipulated
interests accrued and to accrue up to the time agreed upon for the payment of the principal, is
contra bonos mores, against public policy, and should be disregarded and deemed as not written
in the contract.

A loan of P200,000 in Japanese war notes was made on 5 May 1944, payable within one year
from 5 May 1948. An additional loan of P16,000 in Japanese war notes was made on 31 July
1944, payable within the same period of time as the previous one. On different occasions in
October 1944, the debtor tendered the sum of P254,880 in full payment of the principal of the
loan and the stipulated interests up to 5 May 1948, a tender refused by the creditor. In view of
this refusal, the debtor deposited the sum and filed a complaint in the competent court to compel
the creditor to accept the sum thus tendered and deposited.

To compel the debtor after the moratorium shall have been removed to pay in the present
currency the principal of the loan made in Japanese war notes which at the time of the loan had
very little value or purchasing power, and the stipulated interests up to the date of payment
thereof, is so shocking to the conscience of a fair-minded person that it will constitute a blot on
the administration of justice in this Republic. To that I cannot give my assent.

The requirement that previous notice of consignation be made to the creditor was practically
complied with by the deposit in court of the sum of money tendered and the filing of the
complaint by the debtor against the creditor to compel the latter to accept the payment of the sum
of money thus tendered and deposited. The notice of consignation is superflous where a
complaint is filed and the sum of money tendered for the payment of the principal of the loan and
stipulated interests is deposited in court, because to avoid litigation the creditor or any party
interested in the fulfillment of the obligation may still accept the payment of the sum of money
deposited after he receives the summons. It does not appear in the case that any party other than
the creditor was interested in the fulfillment of the obligation at the time the consignation was
made.

The cross-claim of the creditor should have been dismissed. The consignation made by the
debtor should have been upheld, or if the provisions as to consignation were not adhered to or
complied with, then the creditor should be entitled at most to the sum awarded by the trial court.

EXCERPTS FROM THE MINUTES OF MARCH 27, 1952

xxx xxx xxx

This concerns the motions for reconsideration filed both by plaintiff and defendant in
G.R. No. L-3316, Jose Ponce de Leon vs. Santiago Syjuco, Inc.

Plaintiff predicates his motion for reconsideration on the following grounds: (1) the
difference of P192,870 between the value of the promissory notes in litigation calculated
on the basis of the Ballantyne schedule and their value on the basis of one Japanese
military peso constitutes an unjust enrichment (enriquecimiento torticero) unsupported by
any true consideration, and cannot be sanctioned by this Court; (2) the limitation on the
right to pay the loans as stipulated in the promissory notes was contrary to law and public
order at the time the notes were executed; and (3) the aforesaid difference of P192,870
constitutes defendant's winnings in gambling, and cannot be recovered.

Defendant seeks the reconsideration of the decision on the following grounds: (1) the
moratorium law has been erroneously applied in this case; (2) the decision has
erroneously condoned the interest stipulated from August 6, 1944, to May 5, 1949; and
(3) the Court has erroneously absolved the plaintiff from his obligation under the penal
clause.

We will first take up the grounds of the motion for reconsideration of the plaintiff.

Claiming that the real value of the loan made by defendant to plaintiff in 1944, measured
in terms of genuine currency, is P34,130, including interests, and if plaintiff is made to
pay to defendant P216,000, with interests, in genuine currency, the difference between
the actual value of the loan received by plaintiff and the value set in the decision is
P192,870, which represents the value actually transferred from plaintiff to defendant. It is
claimed that this is an unjust enrichment which cannot be sanctioned in equity.

The fundamental doctrine of unjust enrichment is the transfer of value without just cause
or consideration. The transfer is usually made in accordance with law, but the
determining factor is the lack of cause or consideration. The elements of this doctrine are:
enrichment on the part of the defendant; impoverishment on the part of the plaintiff; and
lack of cause. The main objective is to prevent that one may enrich himself at the expense
of another. If this situation is obtained, equity steps in to protect the one prejudiced.

This doctrine is sound. It is based upon equity, and though not expressly recognized on
our old Civil Code, it is reflected in some of its provisions. Example: payments received
though not owing, indebiti solutio, wherein an obligation to restore the thing received
arises (Art. 1895). This relation is considered by treatisers as a kind of quasi-contract.
(Castan, Derecho Civil Español, tomo 3, pag. 424).

But we doubt the application of this doctrine to the present case, if we view it in the light
of its fundamental purpose, which is lack of cause or consideration. Here we find that the
money given to the plaintiff in May and July, 1944, was invested by him not only to pay
his pre-war obligations but also those contracted by him during the Japanese occupation.
According to his own admission, these accounts reached a total of P105,000. The rest he
used to promote his guerilla activities. He, therefore, made use of the money in the light
of his most pressing needs and made use of it for his personal enrichment. This being so,
it is fallacious now to claim that to make plaintiff return the money he made use of to
advantage in the manner he stipulated constitutes an unjust enrichment on the part of the
giver. Nor is it fair and logical to conclude, after plaintiff had made use of the money to
suit his purpose, that the transaction should be voided simply because the advantage has
gone the other way. This is a venture in which both have speculated. It may work one
way of the other and as such both must abide by it.

The claim that the speculation which limits the right to pay the loans within a certain
period of time was contrary to the law and public order at the time the notes were
executed is untenable. We find nothing in the law or in the orders issued by the military
authorities in force at the time the notes in controversy were executed that could prevent
anyone from stipulating as to the time within which certain obligation is to be paid. The
military orders regarding the use and circulation of military notes do not contain any
prohibition of this nature. They merely contain an injunction that those notes should be
accepted as legal tender in making payments of all kinds, under pain of severe
punishment for those who may infringe it. The stipulation in question does run counter to
this injunction for it merely limits the time of payment of the obligation. We find nothing
in this stipulation which may be said to be contrary to the law or public order prevailing
at the time.

Whether the stipulation in question involves a gambling transaction or not, and as a

consequence, the winnings resulting therefrom should be prescribed, as the law requires,
is a closed matter. In Roño vs. Gomez, May 31, 1949, 46 Off. Gaz., Supp. (Nov. 1950),
333 this Court said: "Our legislation has a word for these contracts: aleatory. The civil
code recognizes their validity (See article 1790 and Manresa's comment thereon) on a par
with insurance policies and annuities". And in Gomez vs, Tabia, Aug. 5, 1949, 47 Off.
Gaz., (Feb. 1951) 641, this Court also said: "This kind of agreement is permitted by law.
We find nothing immoral or unlawful in it. It may be viewed in the same light as
insurance contracts, or sales of grain, sugar or other commodities to be delivered at some
future date, whose price is subject to fluctuation, and may, at the time of delivery, be way
above or below the sales price." It should be stated here with a sense of finality that
contracts of this nature are valid and are not contrary to law, moral, or public order.

Let us come to the motion for reconsideration of defendant.

It is claimed that the Court has erroneously applied the moratorium law because of the
pretense that the plaintiff has failed to invoke it in his favor in the lower court, and that
while it is true that plaintiff has invoked the moratorium law he did so only in connection
with his obligation to pay the interests and damages, and not in connection with the
principal.

It should be noted that one of the errors assigned by plaintiff in his brief that the lower
court erred in finding that he did not invoke the benefits of said moratorium law in his
pleadings, and the defendant, in meeting this imputation, never claimed that plaintiff did
not invoke the moratorium law, but merely limited his argument to the contention that
plaintiff cannot invoke it because he failed to prove that he is a war victim, and that said
law is unconstitutional. It is only now that the defendant makes the claim that plaintiff
limited his objection to interests and damages. Surprisingly, defendants makes this claim
for the first time in its motion for reconsideration.

We are of the opinion that the defense of moratorium set up by the plaintiff in the lower
court applies both to the principal obligation as well as to the interests and damages, as it
was so understood by the defendant. And this being so, defendant is now estopped from
claiming otherwise, especially if it is considered that, to apply moratorium to interests
without at the same time applying it to the principal is incongrous. This claim, therefore,
has no merit.

There is merit in the claim that the interests the plaintiff should pay on the obligation
should be counted from the date plaintiff has ceased to pay said interests, or from August
6, 1944. This should be corrected.
 We find no reason to disturb the finding of this Court in so far as the penal clause is
concerned. All things considered, this finding should be maintained.

Wherefore, the motion for reconsideration filed by the plaintiff is denied.

The motion for reconsideration filed by the defendant is also denied. However, the
dispositive part of the decision rendered in this case should be modified as follows:

In view of the foregoing, the decision appealed from should be modified in the sense of
ordering the plaintiff to pay the defendant Syjuco the sum of P216,000, Philippine
currency, value of two promissory notes, with interest thereon at the rate of 6 per cent per
annum from August 6, 1944, up to May 5, 1949, and with similar interest from May 6,
1949 until said amount is paid in full. It is further ordered that should the amount of this
judgment — principal and interests, — be not paid within ninety (90) days from the date
this judgment becomes final, the properties mortgaged should be sold at public auction,
and the proceeds applied to the payment of this judgment in accordance with law, with
costs against the plaintiff.

However, this judgment shall be held in abeyance, or no order for the execution thereof
shall be issued, until after the moratorium orders shall have been lifted.

The Chief Justice and Justices Pablo and Padilla dissented and voted also to let the case be set for
hearing.

Footnotes

PARAS, C.J., dissenting:

1
84 Phil., 630.
2
88 Phil., 890.
3
84 Phil., 269.
*
77 Phil., 782.
**
83 Phil., 471.